Photobooth and vending machine operator Photo-Me (LSE: PHTM) has had a good year. Back in March, when it was my share of the month, it jumped by over 25% in the course of several weeks. It is up 24% over the past 12 months, at the time of writing this article before today’s market opening. But can the Photo-Me share price continue its growth trajectory in 2022?
A misunderstood business
A lot of investors don’t realise that the company operates far more than photo booths. While those continue be an important part of its business, the company has been reshaping its portfolio in recent years. It operates all sorts of machines in public places, such as orange juice squeezers, arcade games and self-service laundry kiosks.
The good thing about that business model is that it enables Photo-Me to earn revenue without having high staff costs. Unmanned washing machines on garage forecourts, for example, require only limited servicing. The increasing use of card payments has even reduced the need for someone to go round and physically remove cash from such machines.
With its long history operating photo booths and vending machines across a lot of different markets, I think Photo-Me can continue as a leading player in this business area. While the demand for photo booths may decline as digital identification pictures increase in popularity, I think the overall vending space has room for growth.
With its focus on public areas, the company suffered a hit to revenues and profits when lockdowns meant few people going to shopping centres and similar venues. That remains a risk for the company in 2022.
However, in the past few months, business has been showing promising signs of recovery.
Earlier this month, the company issued a trading update for the year. It said that its final quarter had seen “better than expected trading momentum”. The photobooth business continued to recover and the laundry machines did well. It raised revenue forecasts. The company estimates that profits would come in at the top end of expectations, at around £25m-£30m for the year. It said that outside of Asia, it is progressing well in returning to pre-pandemic business levels. Asia continues to be a risk for the company’s revenues, as pandemic restrictions there threaten to keep demand subdued. That could hurt company revenues overall.
Will the Photo-Me share price increase?
The forecast pre-tax profits, excluding exceptional items, compare to pre-tax profits of £50m back in 2018 so are still well down. But with continued recovery, I think 2022 profits could increase substantially. They may still not reach pre-pandemic levels, but could get close.
Even with the past year’s forecast profits, before exceptional items, the shares trade on a price-to-earnings ratio in the single-digits. If next year’s profits are higher, as I expect them to be, the prospective P/E ratio will be even lower. I continue to see Photo-Me shares as undervalued even after their performance over the past year. If business continues strongly in 2022, I see upside potential in the Photo-Me share price. I would consider adding them to my portfolio on that basis.
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Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.